CC defaults soar, despite low debt

Community colleges are struggling to pay back their student loans, writes Andrew Kelly in Forbes.  While two-year public colleges charge low tuition, the default rate is high.

Only about 20 percent of community college students borrow, and 70 percent borrow less than $6,000. But low graduation rates put even small borrowers at risk of owing more than they can repay.

“Unfortunately, less debt does not equal fewer defaults,” writes Kelly. “And default’s consequences, like wage garnishment and severe credit damage, can hurt borrowers even more than a bloated loan balance.”

Policymakers should turn their attention from total debt to students’ ability to repay, Kelly argues. Income-based repayment plans “try to do exactly this, but they are far too generous to graduate students,” who often have high debts and high incomes.

The “front-end problem” is that “student loan programs encourage attendance at any program, at any college, and at any price.”

That means we subsidize a lot of failure. According to my analysis of the most recent federal data, about 37 percent of loan disbursements in the Stafford and Parent PLUS programs (loans for undergraduates) in 2012-2013 went to colleges with six-year graduation rates that were 40 percent or lower. That’s a lot of loans to people whose chances of finishing a degree are worse than flipping a coin.

What we need are policies that push students toward more effective and affordable options on the front end: better consumer information, income-share agreements, and risk-sharing that gives colleges skin in the game.

 The Student Loan Ranger has advice for community college students on how to avoid the debt trap. 

Corinthian crashes

Under investigation for falsifying job placement rates, for-profit Corinthian Colleges will sell 85 campuses and close 12 others. The national company runs Everest, WyoTech and Heald career colleges.

The Department of Education had put a hold on Corinthian’s access to federal student aid. Under an agreement reached last week, the DOE will provide $35 million in student aid funding to provide time to sell or close the colleges. Corinthian’s finances will be monitored closely by an independent auditor.

Corinthian receives $1.4 billion in Pell grants and federal student loans each year, which represents 85 percent of total revenuesreports the Miami Herald.

The company is facing charges in several states, including Florida and California, of exploiting and misleading low-income students.

Florida’s community colleges, which are some of the best in the nation, often offer similar programs at a far lower price. For example, Everest’s Pompano Beach location charges about $15,000 in tuition for a medical assisting diploma; at Broward College, the same program costs $1,698 for in-state students.

The Florida attorney general’s investigation of Everest has produced 100 pages of complaints, reports the Herald.

The California attorney general’s lawsuit cited internal Corinthian documents that described its students as “isolated” individuals with “low self-esteem” who have “few people in their lives who care about them.”

The California lawsuit states “the placement rates published by [Corinthian] are at times as high as 100 percent, leading prospective students to believe that if they graduate they will get a job. These placement rates are false and not supported by the data. In some cases there is no evidence that a single student in a program obtained a job during the time frame specified in the disclosures.”

In some instances, the suit says, Corinthian paid temp agencies to give its graduates short-lived jobs — so it could inflate the job placement numbers, and maintain the accreditation required to receive federal aid.

Corinthian’s enrollment has fallen to 72,000 students, estimates the DOE.

National Journal has more on the fall of Corinthian.

Boomerang

Annie Kasinecz, 27, lives with her mother in Downers Grove, Illinois. She borrowed $75,000 to earn a degree in advertising and public relations at Loyola University in Chicago. Now working as a project coordinator, she’s lived at home rent-free for four years.  Credit Damon Casarez for The New York Times

The Boomerang Kids Won’t Leave home, predicts the New York Times Magazine. With college loans and low-paying jobs, they can’t afford to pay rent.

One in five people in their 20s and early 30s is currently living with his or her parents. And 60 percent of all young adults receive financial support from them. That’s a significant increase from a generation ago, when only one in 10 young adults moved back home and few received financial support.

. . . Those who graduated college as the housing market and financial system were imploding faced the highest debt burden of any graduating class in history. Nearly 45 percent of 25-year-olds, for instance, have outstanding loans, with an average debt above $20,000. . . . And more than half of recent college graduates are unemployed or underemployed, meaning they make substandard wages in jobs that don’t require a college degree.

The photographer, who lives at home and freelances, was graduated from an art college with $120,000 in debt. 

Alexandria Romo, 28, also a Loyola graduate, earned an economics degree but says she “had no idea what I was doing when I took out those loans” at the age of 18. She borrowed $90,000. Romo wishes she’d been taught about student loans, math and finance before borrowing at 12.5 percent interest. Romo lives at home in Austin and works at a security-guard company. Her dream is to be an environmentalist.

Community college students may struggle to graduate, but they don’t run up huge debts in the process.

An open door to debt?

Community colleges provide an open door — to failure and debt, argues Community Colleges and the Access Effect  by Juliet Lilledahl Scherer and Mirra Leigh Anson.  Scherer, an English professor at St. Louis Community College, specializes in developmental education. Anson, a former remedial writing instructor, runs the University of Iowa’s Upward Bound Project.

Poorly prepared students have little chance of success, write Scherer and Anson. Raising admissions requirements would strengthen academic classes for prepared students and protect the unprepared from debt.

Open-door admissions can perpetuate inequity, the authors tell Inside Higher Ed‘s Paul Fain in an e-mail interview. One mentors a a brain-damaged young man who was shot in the head when he was 16. He enrolled in community college, failed all his courses and went into debt that made him ineligible for a job training program. He works part-time for $7.35 an hour.

As students’ skills and ability levels declined, community colleges designed lengthy remedial sequences, Scherer and Anson write. Some “credit-bearing coursework . . .  is equal to standard kindergarten fare.”

The national college completion agenda movement is threatening academic standards, they charge. Advocates also blame remedial courses for high failure rates, ignoring “the monumental impact of academic preparation, aptitude and student motivation on completion.”

The rise of performance-based funding puts more pressure on community colleges to lower standards in order to raise completion rates, they add. That will make community college graduates unemployable in a competitive workforce.

“Reasonable entrance standards, coupled with a more compassionate approach to advising and enrolling community college students” will help students succeed, they argue.

 Some current degree-seeking students would thrive more — completion-wise and financially — in apprenticeships and job-training programs than they would in traditional two- or four-year degree programs.

Some are in desperate need of short-term training programs to financially stabilize them so that one day they might return and succeed in a more traditional degree program. Instead of repeatedly enrolling in and failing developmental education coursework aimed at eventually qualifying students for college-level coursework, many persons with intellectual disabilities, for example, are truly in need of affordable postsecondary programs to assist them in developing a career plan and independent living skills, including learning to manage their money and their personal safety and health, for example.

A few community colleges now require students to test at the seventh-grade level or above.

Community colleges are about second chances, responds Matt Reed. We don’t know who will take advantage of the opportunity before they try. And the alternatives for students who are turned away are very bleak.

Carnevale: Link loans to value

President Obama’s student loan plan, which limits repayment to 10 percent of the borrower’s disposable income, closes the barn door after the horse is gone, says Anthony Carnevale, director of Georgetown’s Center on Education and the Workforce, on NPR.  The fundamental question about college debt is whether students are “getting value for money,” says Carnevale.

Are we helping people cope with debts they never should have taken on in the first place?

Students and their parents don’t always think through what they’re spending for college and what they’re likely to get for it, says host Michel Martin.  If students know they’ll only have to pay 10 percent of their income — with the unpaid balance forgiven in 10 to 20 years — might they be tempted to think “it’s not going to be that big of a deal?”

That’s a risk, says Carnevale. If the system isn’t linking loans to long-term earnings, it will continue to be ineffecient.

Ultimately, the taxpayer pays for that as do many of the students who find these loans still overwhelming. That is, it’s not as helpful if you’ve built the loan and it’s going to burden you for a number of years. Just have somebody help you with the burden. The real issue is ensuring that you minimize the burden in the first place by linking value — economic value — to the loan.

The loan policy will help some people, he says. More fundamentally, we need to “ensure the young people know what they’re getting into when they borrow and make sure they’re not borrowing trouble down the road.”

Stop telling 18-year-olds to follow their “passion” — and run up huge debts, writes economist Peter Morici in the Baltimore Sun.

Easy access credit has pushed up college tuition far faster than inflation generally and even health care costs. University presidents are happy to pad bureaucracies and indulge faculty who would rather undertake research than teach, if students can borrow money to pay for it all.

College primarily “is about acquiring skills that have value in the marketplace,” writes Morici.

Borrowing trouble

President Obama’s executive order expanding Pay As You Earn (PAYE) will provide some debt relief to some borrowers, writes Diana Carew, director of the Young American Prosperity Project at the Progressive Policy Institute. But it also will boost subsidies for a “broken higher-education financing model” and reinforce the idea that college attendance is the only postsecondary option.

While everyone needs some form of post-secondary education to earn a living, not everyone needs a bachelor’s degree, writes Carew.

The wage premium for college graduates is growing not because the degree is worth so much more, but because high school diplomas as worth so much less. In fact, real earnings for recent college graduates have been falling over the last decade, and underemployment remains at record highs.

. . . Moreover, the new tools of digital learning — such as online courses — should be driving education costs down, yet tuition continues to climb. That suggests the entire financing model for higher education needs reform. And because there are too few viable pathways into the workforce after high school, our $100 billion per year federal student aid system is channeling people into four-year colleges who may be better suited for less expensive options.

Expanding PAYE may help some borrowers now, but it  almost certainly “will exacerbate the burden on the federal student aid system in the long run, argues Carew. “Borrowers have less incentive to make smart borrowing decisions, or complete in a timely manner. And schools have less incentive to control costs.”

Expanding PAYE “won’t do much to make college more affordable,” writes Clare McCann on The Hill.  It will affect only people who’ve left college and already are eligible for income-based repayment. They must be Direct Loan borrowers — but most pre-2007 borrowers used the now-defunct Federal Family Education Loan program instead.

Few borrowers have opted for income-based repayment so far because the plans are so complex, she writes. “Gimmicks like this one don’t help much — in fact, they make the system even more complex.”

Pell goes up, but so does tuition

The near-doubling of Pell Grant funding hasn’t decreased borrowing by low-income students, writes Ben Miller, a senior policy analyst at the New America Foundation, in the Chronicle of Higher Education. Federal dollars are “gobbled up by insatiable college budgets” and used to offset state cuts in higher education spending.

The increased funding for Pell Grants provided colleges across the country with billions of dollars in additional revenue and resources. And it had arguably the least restrictive requirements of any stimulus dollars. Colleges did not have to ensure that Pell dollars supplemented and did not supplant funds already provided by states and schools. States were not told to avoid cutting their postsecondary budgets, as they were in other programs. This lack of strings left states and colleges free to slash support, increase tuition, and use Pell to make up the difference.

The federal government did not even ask for more transparency about whether colleges successfully graduated students getting this aid—a common last gasp attempt at oversight. Rather, colleges took the dollars and continued the same trend of increasing prices they’ve been following for decades.

The federal government needs to protect the purchasing power of federal student-aid investments and demand “transparency about basic outcomes like completion,” writes Miller.

Obama extends 10% cap on loan repayment

Another five million people with student loans will be able to limit payments to 10 percent of their discretionary incomes. Loans will be forgiven in 20 years — or 10 years if they take public-service (government) jobs.

President Obama issued an executive order Monday extending generous repayment terms to more debtors. He also urged Congress to approve a bill to let 25 million borrowers refinance student loans at lower rates.

The biggest winners will be people who took on debt to pay for graduate school, notes the Christian Science Monitor.

All student borrowers – including those 5 million likely to be affected by this change – already had access to some form of income-based repayment, notes Jason Delisle, director of the New America Foundation’s Federal Education Budget Project. Under the previous terms, those who didn’t have access to PAYE (Pay As You Earn) could still do income-based repayment where they paid 15 percent of their incomes, after a $17,500 exemption, and had their debt forgiven after 25 years. In many ways, he says, those terms made much more sense, and were more fair, especially for students borrowing large sums of money to go to grad school, who are very unlikely to be able to pay off their loans in 10 or 20 years even with high incomes.

“Income-based repayment is vital, and it’s important we have it, but it’s very important we get the terms right,” says Mr. Delisle. “The payments are too low and the terms are too short for someone who’s borrowed to go to grad school.”

Burdened with student loan debt, young people can’t buy their first home, Obama said.

That’s saying “we need to help [student loan debtors] with debt so they can go into even more debt”  with a mortgage, Delisle said. Student loans already helped these borrowers consume beyond their means, he said.

Encouraging students to borrow more for college also enables colleges to keep raising tuition.  “It’s dealing with the symptoms and not the disease,” says Richard Vedder, director of the Center for College Affordability.

Some low-income, minority and first-generation students think their loans will be forgiven, reports Sophie Quinton on National Journal.

“A lot of students will take out loans because they hear that if you’re in a certain job it gets paid off. That’s not always the case,” says Lauren Ellcessor, 28, a counselor at the Educational Opportunity Center in Norfolk, Va.

. . . “I get the quote: ‘I’m here to get Obama’s plan to get rid of my student loans,’ ” Ellcessor says. It’s not that easy, she tells clients.

Loan forgiveness should be eliminated, argue Brookings’ researchers Beth Akers and Matthew Chingos. It encourages students to borrow more and stick the taxpayers with the bill. Frugality is not rewarded.

Nationwide, student loan debt tops $1 trillion.

Is college worth it for everyone?

Going to college is “clearly” a smart economic choice because the “college premium” is increasing, wrote David Leonhardt in the New York Times.

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Not so fast, writes Grace at Cost of College. There’s been plenty of pushback to Leonhardt’s thesis.

Compare apples to apples, writes Matthew Yglesias on Vox.

Suppose I got someone to make a chart showing the incomes of prime-age BMW drivers versus average Americans. It would reveal a large BMW earnings premium. I could even produce a chart showing that the children of BMW drivers grow up to earn more than the average American. But that wouldn’t be evidence that BMWs cause high wages, and that the BMW Earnings Premiums extends across multiple generations. It would be evidence that high-income people buy expensive cars and that there’s intergenerational transmission of socioeconomic status.

. . . How do college graduates fare in the labor market compared to people who were otherwise similar at age 18 in terms of SAT scores, non-cognitive skills, parental socioeconomic status, etc?

The college premium varies significantly by field of study, writes Bryan Caplan. Petroleum engineering or theater arts?

“Most of the benefits of college come from graduating, not enrolling,” writes Ben Casselman on the Five-Thirty-Eight blog. The wage premium for people with “some college” has been flat “even as debt levels have been rising.” Dropouts may be worse off than if they’d never enrolled.

Only 60 percent of full-time college students earn a degree in six years and the odds are much lower for racial minorities, low-income students, older students and part-timers, he writes. “The six-year graduation rate is well under 20 percent” for some groups. These are the people struggling with the “Should I or shouldn’t I?” question.

Going to college is risky for marginal students — especially for men — according to the Center for Economic and Policy Research.

People in the top half of the income distribution don’t question the value of college for their own children, notes EduOptimists. The real question is: “who should go to college among those in the bottom 50%?” and “what should we pay for those people to go?”

Gainful employment regs for everyone?

The Gainful Employment Rule Is Coming For Everyone, warns Edububble. For now, the for-profit colleges are being forced to “generate a real return for their students,” but it won’t stop there, he writes.

Once the world starts getting the bill for Income-Based Repayment, this will be the only choice for the Republic. Come after the source of the pain and that means all of those twits studying cross-disciplinary BioTheater and other overpriced courses like English or even Bio.

. . . There are too many defaults and the government is just going to have to shut down the free money fountain.

The gainful-employment rule applies to career programs at public and private nonprofit colleges, as well as to for-profits. If too many students in a career program default on loans or run up a high level of debt relative to their earnings, that program’s students would lose access to federal student aid. Community colleges, which have a rising number of borrowers and high default rates, are plenty worried about it already.

The U.S. Education Department’s revised proposal is “flawed, arbitrary, and biased,” and will shut millions of students out of college, contends the Association of Private Sector Colleges and Universities, which represents the for-profit sector, reports the Chronicle of Higher Education.

A 100-age report by economists at Charles River Associates, funded by the for-profit trade group, attacked the regulations for using the level of students’ earnings rather than their earnings gains to measure a program’s effectiveness.

While the Education Department estimates 31 percent of students would be affected, potentially losing access to student aid, the report predicts as many as 44 percent would be enrolled in programs that fail the federal test.

Coupled with income-based repayment, the proposed rules would protect programs whose graduates have very low earnings, writes Ben Miller on EdCentral. “Allowing programs to pass solely based on the annual debt-to-earnings measure makes it possible for a program with sub-poverty wages to still avoid failing the metrics.”